Indian economy is expected to grow marginally higher at 7.5 per cent during the year compared with 7.2 per cent in 2014 and interest rate cuts will buttress private sector spending, said a group company of global rating agency Moody’s.
“Our tracking model suggests that first quarter GDP growth is tracking around 7.3 per cent, a slowdown from prior quarters. But we expect this softness will prove temporary with improving domestic demand to help India’s GDP grow 7.5 per cent for all of 2015,” Moody’s Analytics said in a study.
Earlier in the day, Moody’s Analytics had put its growth estimate for the year 2015 at 7.3 per cent, which it later “amended” to 7.5 per cent.
Earlier this week, International Monetary Fund projected that India will overtake China as the fastest growing emerging economy in 2015-16 by clocking a growth rate of 7.5 per cent, helped by its recent policy initiatives, pick-up in investments and lower oil prices.
World Bank too has similar GDP growth forecast for India for the current fiscal year.
Moody’s Analytics said, India’s economy is on a cyclical upswing and forward-looking indicators suggest domestic demand is gathering momentum.
“Low inflation has enabled the Reserve Bank of India to cut interest rates by 50 basis points easing pressure on the private sector. Lower rates as well as the government’s infrastructure and disinvestment programs should provide a boost to domestic-oriented industries,” it said.
It further said that the government also wants more foreign businesses to invest in India, with a focus on public and private partnerships.
“Foreign investment in India has been weak because of significant red tape and taxes. The government is taking encouraging steps to reduce these burdensome regulations to entice more foreign investment,” it said.
On the disinvestment front, it said the government has begun selling public sets as it plans to raise Rs 70,000 crore in fiscal 2015-2016.
“Approximately 5 per cent of the Rural Electrification Corp, a state-owned power company, was sold in early April. Strong investor demand for the electricity company suggests that the government should have few problems selling its other assets,” it said.
Moody’s Analytics is of the view that “India’s state-owned companies are notoriously inefficient, with significant bureaucracy and endemic corruption. Asset sales can make companies more productive and should ease the supply bottlenecks choking the economy.”
Funds raised from disinvestments will be spent on developing India’s ailing infrastructure.
“If revenues fall short, we expect the government to cut expenditure to meet its 3.9 per cent deficit target for 2015-2016. Lower government spending is a downside risk to our forecast over the coming year,” it added.